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Dairy Outlook: U.S. milk production is 4.6% higher than a year ago.

Fran O'Leary, Wisconsin Agriculturist Editor

June 30, 2021

4 Min Read
Dairy cattle at feeder
DOWNWARD PRESSURE: Milk production continues at a relatively high level, putting downward pressure on milk prices. “U.S. milk production was estimated to be up 3.5% from a year ago in April and 4.6% higher in May,” says dairy economist Bob Cropp.Fran O’Leary

Cheese prices are much weaker in June than early May, with dry whey prices lower and butter prices higher, says Bob Cropp, University of Wisconsin-Madison dairy economist.

“In early May on the CME, cheddar barrels were $1.81 per pound, 40-pound cheddar blocks were $1.80, dry whey was 66 cents, and butter was $1.75 per pound,” Cropp says. “As of June 21, barrels were $1.48, 40-pound blocks $1.47, dry whey 61 cents per pound, and butter was $1.78.”

As a result, he predicts the Class III price, which was $18.96 in May, will be about $17.25 in June. The Class IV price will show some strength in June, with the butter price up slightly and the price of nonfat dry milk averaging about $1.27 per pound. The Class IV price, which was $16.16 in May, will be about $16.45 in June, Cropp says.

Too much milk

Milk production continues at a relatively high level, putting downward pressure on milk prices.

“U.S. milk production was estimated to be up 3.5% from a year ago in April and 4.6% higher in May,” Cropp says. “A year ago, with lost market due to COVID-19, dairy producers were told to reduce milk production. As a result, May milk production was 0.5% lower than the year before.”

Nevertheless, May production this year has made a strong comeback. Milk cow numbers continue to increase, climbing 5,000 head in May. According to USDA, there are 145,000 more milk cows than a year ago, which is a 1.6% increase. Milk production per cow is also up, by 3% from a year ago.

Compared to a year ago, three states had double-digit increases in May milk production: South Dakota, 14.6%; Indiana, 12.6%; and Texas, 10.8%. California and Wisconsin, the top two milk-producing states, had increases of 5% and 5.6%, respectively. Other states with relatively strong increases were Kansas, 7.3%; Iowa, 6.2%; Minnesota and New Mexico, 6%; Colorado, 5.3%; Michigan, 5.1%; and New York, 4.2%.

Cropp believes high feed prices may curtail milk production by fall. “With widespread drought tightening feed supplies, feed prices could be a lot higher by fall, which could slow down milk production by the fourth quarter,” he says.

Unless milk production slows, milk prices are likely to weaken from June through August and then increase starting in September, peaking in October or November, he says. “Milk production will decline seasonally during the summer months, while fluid milk sales will increase in late August and September as schools open, and butter and cheese prices will strengthen as inventories build for strong seasonal sales Thanksgiving through Christmas.”

If things return more to normal with in-person learning in schools and colleges, restaurants more fully open, fans filling bleachers at sporting events and the return of conferences, Cropp believes food service sales will return to more normal.

“All of this can strengthen milk prices starting this fall,” he says. “However, the strength in milk prices will highly depend upon how quickly things return to more normal.”

Strong dairy exports

Dairy exports continue to be a bright spot, adding support to milk prices. The volume of April exports on a milk solids equivalent grew by 25% compared to April 2020. Nonfat dry milk-skim milk powder exports were up 15.5%, whey products up 17.6%, cheese up 51.2% and butterfat up 257%.

“Nonfat dry milk-skim milk powder, cheese and butter remain very price-competitive on the international market,” Cropp says. “World milk production growing no more than about 1% and world demand improving the outlook for strong exports for the remainder of the year looks promising.”

But Cropp says the outlook for milk prices for the rest of the year remains uncertain.

“It all depends upon how milk production, domestic sales and exports turn out,” he says. “Unless cheese prices recover, Class III will be in the $16s by July and may not reach the $17s until September, and only topping in the higher $17s in the fourth quarter. But we can’t rule out the possibility of Class III reaching the $18s in the fourth quarter.”

Class III futures have weakened from earlier this year, but they could rise to the low $18s for the remainder of the year, Cropp believes.

The latest USDA price forecast is not as optimistic about milk prices, with Class III averaging just $17.15 this year compared to $18.16 last year.

About the Author(s)

Fran O'Leary

Wisconsin Agriculturist Editor

Even though Fran was born and raised on a farm in Illinois, she has spent most of her life in Wisconsin. She moved to the state when she was 18 years old and later graduated from the University of Wisconsin-Whitewater with a bachelor's degree in journalism.

Fran has 25 years of experience writing, editing and taking pictures. Before becoming editor of the Wisconsin Agriculturist in 2003, she worked at Johnson Hill Press in Fort Atkinson as a writer and editor of farm business publications and at the Janesville Gazette in Janesville as farm editor and feature writer. Later, she signed on as a public relations associate at Bader Rutter in Brookfield, and served as managing editor and farm editor at The Reporter, a daily newspaper in Fond du Lac.

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